Buoyed by new deals with American Airlines and Alaska Airlines that will shore up SkyWest in the long run, the regional carrier has recorded a quarterly profit and is optimistic about its opportunities of resuming its full scale of operations as the industry recovers. With a profit of just under $62 million under its belt, SkyWest is coming back strong and bolstering its position as a leading regional carrier in the United States.
SkyWest secures new deals with American Airlines and Alaska Airlines
Alongside its second-quarter 2021 earnings announcement, SkyWest announced it had reached new agreements with both American Airlines and Alaska Airlines covering expanded regional jet flying over the next few years.
With Alaska Airlines on top of the eight previously announced Embraer E175 aircraft additions, SkyWest will be taking on a ninth E175 in the first half of 2023. This ninth jet will join the other eight as a purchase from Embraer. SkyWest anticipates financing the aircraft through debt. The ninth E175 announced on Thursday will be delivered in the first half of 2023.
SkyWest, excluding the recent deals, flies 32 Embraer E175s for Alaska Airlines. The contracts on those jets have been extended through the rest of the decade, giving a lot more stability to SkyWest.
Separately, with American Airlines, SkyWest has announced a new deal for 11 additional used CRJ700s entering service between late 2022 and mid-2023. SkyWest already flies CRJ700s with American Airlines and has been steadily adding more jets to its contract with the Dallas/Fort Worth-based carrier.
SkyWest secures a huge position with American Airlines
American Airlines is one of the largest airlines in the world, and it is a major partner for SkyWest. In the second quarter of 2021, SkyWest placed six used CRJ700s in service with American Airlines under the American Eagle banner.
In the second half of 2021, the airline plans to add ten used CRJ700s to its roster with American. This will bring the total number of CRJ700s SkyWest flies for American Airlines to 90 by the end of the year. Factoring in the 11 additional used CRJ700s entering service next year and through 2023, SkyWest will fly a total of 101 CRJ700s with American Airlines by mid-2023 – at least.
According to Wade Steel, Chief Commercial Officer at SkyWest, most of these CRJ700s are coming out of long-term storage and will undergo extensive maintenance work to reenter service.
Separately, SkyWest also has a contract with American Airlines for 20 Embraer E175 aircraft. Of these, 18 deliveries are anticipated in the second half of 2021. The remaining two will be delivered in 2022. All aircraft are scheduled to be placed into service next year. SkyWest will finance the aircraft through debt.
With American Airlines, Mr. Steel announced the extension of a contract for 22 CRJ700s. These contracts on those jets were set to expire in late 2022. They have now been extended for another three years to 2025.
SkyWest only flies CRJ700s for American Airlines and will be adding the Embraer E175s. Altogether, when these deliveries are done, the airline will be flying 121 planes under the American Eagle banner.
About SkyWest Airlines
The SkyWest model is not a typical airline. Unlike United, American, Spirit, Delta, Alaska, or Hawaiian – to name a few examples – SkyWest does not market and operate its own flight. Instead, the airline does regional flying on behalf of major US airlines.
It is more cost-efficient for major airlines to sign deals for regional jet flying with a carrier like SkyWest. With a cost structure primed for regional jets, SkyWest can offer better rates to carriers than if they operated small regional jets on their own.
However, SkyWest cannot add as many regional jets as it would like under a given carrier. Instead, major airlines bring contracts for flying to SkyWest that are governed by agreements with their pilots. Scope clauses in pilot contracts limit the number and size of aircraft that regional carriers, like SkyWest, get to fly on behalf of major US airlines.
Nevertheless, SkyWest has been able to hold its own. Flying over 475 aircraft for four carriers (United, Delta, American, and Alaska), it has cemented itself as a major regional airline in the United States, and these deals will continue to grow the airline’s significance across the United States.
SkyWest is in a good spot
Chip Childs, President and CEO at SkyWest, stated the following on the carrier’s second-quarter earnings call:
“Our strong balance sheet and cash position remain key differentiators for SkyWest. Based on what we’re seeing today, we expect demand for our product will continue to increase currently-and currently anticipate reaching pre-pandemic levels by early 2022.”
Domestic demand is coming back strong, and that is primarily where SkyWest flies for major US airlines. In the second quarter, the carrier recorded a profit of $62 million on total operating revenues of $657 million. This includes the $114 million the carrier received in payroll support from the US government.
The expanded contracts mean SkyWest has a lot more stable outlook on revenue over the next few years. Regional jets have been helping pave the way in the recovery, as their versatility has helped keep smaller cities connected and allowed airlines to expand frequencies on key routes without leading to overcapacity in the market.
One of the key aircraft in the recovery has been the Embraer E175. SkyWest had 193 of these aircraft in its fleet at the end of the second quarter, making them the single largest fleet type in service for SkyWest. In terms of block hours, 46% of the over 324,000 block hours SkyWest recorded in the quarter were flown by Embraer E175s.
There are some challenges SkyWest will face. Delta and United have significant numbers of CRJ200s flying under contract with SkyWest, but the two airlines are looking to draw down the number of 50-seaters in their fleets. Delta expects to end CRJ200 flying by the end of 2023. According to comments from Mr. Steel on the carrier’s earnings call, the CRJ200 contracts with United start to expire toward the end of 2024.
This will put some pressure on SkyWest, as it will not be able to replace the 50-seaters with an even number of larger CRJ700s, CRJ900s, or E175s unless pilot contracts are renegotiated. That is out of SkyWest’s control.
US airlines are moving away from 50-seaters. No major carrier has orders for a new 50-seater jet, and few have expressed an interest in pushing for a new breed of 50-seater aircraft. The sole exception is United Airlines, which is adding more premium 50-seaters that offer a first class cabin onboard. Neither Delta nor American are doing this with their aircraft.
This will put some pressure on SkyWest, but recent deals with American and Alaska show that the airline has a lot of strength moving forward and is shoring up its contracts where it can. Expect additional commitments or contract extensions over the coming years as airlines continue to rely on regional jets to augment their networks and perform missions that mainline jets simply cannot.
What do you make of SkyWest’s deals with American and Alaska? Would you fly on a CRJ700 or E175 operated by SkyWest? Let us know in the comments!
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